Here Come the Tax Scams

It’s that time of year again. No, I am not referring to George Washington’s birthday. Nor those of Drew Barrymore, Vijay Singh, Dr. J, Ted Kennedy, or Lord Baden-Powell (dudes . . . he founded the Boy Scouts!). It’s time to prep your bits of paper and checkbook registers for your tax returns. Each year the Internal Revenue Service does us all a favor by offering a dirty duodeciscam (as in a dozen scams) list. “Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen. Scam artists will tempt people in person, on line and by email with misleading promises, about lost and free money. Don’t be fooled by these scams,” Says IRS Commissioner Doug Shulman.

1) Identity theft: If you suspect that your identity has been stolen, notify the IRS Identity Protection Specialized Unit at www.IRS.gov/identitytheft.  If you do so in time you might prevent a rogue from reaping a refund in your name, even if you do not have a refund coming.

2) Phishing. As many of you know, this is not a typo. And it is not related to Price-Pfister, the faucet company. It’s a solicitation that looks exactly like an official email from a government agency or a legitimate company with which you might have done business. The phishing email asks for personal information about you and various account numbers. If you receive an email that appears to be from the IRS and asks you for any personal information, do not respond. Instead, forward it to phishing@irs.gov. It’s a good idea to not provide such information to any business that asks for it in an email.

3) Illegitimate Tax Preparers. If you use a professional to prepare your taxes, check that person or business out before hiring. As the IRS puts it: “Questionable tax preparers have been known to skim off their clients’ refunds, charge inflated fees, and attract new clients by promising guaranteed or inflated refunds . . . In 2012 every paid preparer needs to have a Preparer Tax Identification Number and enter it  on the returns he or she prepares.” Here are some indications that preparers may not be on the up and up: They don’t sign the return or include their tax preparer number; Failure to give you a copy of your return; Promise of a larger-than-expected refund; Charges you a percentage of your refund as a fee; Asks you to split the refund; Adds forms to the return that you never filed before even though your status has not changed; They encourage you to place false information on your return.

4) Hiding Income Offshore. This usually applies to taxpayers (or cheats) with substantial resources. Many people have evaded taxes by hiding income in foreign banks, brokerage accounts and other schemes including foreign trusts, employee-leasing schemes, annuities or insurance plans. Now we all love the IRS, so we’re happy that they have lots of investigators who pursue taxpayers with undeclared accounts, as well as the enablers who assist them in their nefarious undertakings. If you have such offshore holdings, you are required to report the. If you don’t and you get caught, you will most likely have to pay through the nose or some other orifice.

5) Free Money From the IRS. Come on, what other kind of money can be given away? Money that you have to pay for? Scammer have been circulating flyers at community churches or spreading word among low-income people and the elderly. Here’s how the scam works. They let folks know that the government has a money giveaway program. All you have to do is apply. They charge the dupe a fee, help them fill out a form and then disappear. One of the scams involves having the victim apply for a Social Security refund that doesn’t exist.

6) False Income and Expenses. This is a really good way to be called in for an audit. I went through a small such audit a long time ago. I ended up owing nothing but it was a pain in the neck and several other body parts. And if you owe money as a result you will be very, very unhappy. This scam works thus: You claim more income than you actually made and then make false claims about your expenses in order to maximize refundable credits and then get an increased refund. In addition, says the IRS, some taxpayers are filing excessive claims for the fuel tax credit. Doing so could result in having to repay the refunds plus interest plus penalties. Good luck with that.

7) False Form 1099 Refund .Truthfully, I don’t quite understand this. But if you are thinking of filing a false information return like a 1099 Original Issue Discount (OID) to justify a false refund claim, don’t do it.

8) Frivolous Agreements. “Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid.” They have been thrown out of court, so don’t bother.

9) Falsely Claiming Zero Wages. Typically, a filer submits a Form 4852 or a “corrected” Form 1099 that reduces income to zero, sometimes submitting statutory language as an explanation as to why the filer does not consider certain income as wages. Sometimes they blame a paying company for not issuing a corrected 1099. In addition to other penalties there is a $5,000 penalty.

10)  Abuse of Charitable Organizations and Deductions. In a nutshell, here’s what not to do. Don’t claim deductions for contribution to charities over assets that you still control or from which you still make income. Don’t overvalue non-cash assets that you donate. If you donate non-cash assets, make sure you are not claiming the value on one set of donated items that other entities are also claiming.

11) Disguised corporate ownership. In this scheme, third parties request employer identification numbers and form corporations that obscure the true ownership of a business. Then they underreport income, claim fictitious deductions, avoid filing tax returns and pull off all sorts of other scams, like money laundering. The IRS is now working with state authorities to identify such cons.

12)  Misuse of Trusts. Trusts serve all kinds of use purposes, including some that legitimately aid folks in reducing tax burdens. But – and here comes my big but – the IRS has seen an increase in the use of trusts like private annuity trusts and foreign trusts in order to shift income and deduct personal expenses. If you are planning to use a trust, seek the help of a legitimate attorney who specializes in such vehicles and include advice from a financial professional as well.

 

Comments

  1. Love your post! How true it is. But in all fairness, what can some individuals expect? Did they really think that this year would be different? That their refunds would be huge? That their tax preparation would be free? That they got away with it before, so they would just raise the stakes and try it again? At http://www.CPAMiami.com, we’ve found identity theft to be higher than ever before with no real relief in sight. Do your taxes with a trusted CPA firm or licensed preparer and you’ll probably be just fine. Folks who shop around for the “best price” or “highest refund” get what they deserve. Just because your “friend” got away with it, doesn’t mean you should try it too. Remember, the IRS is examining 2009 tax returns now (that’s 3 years later). By the time they get around to looking at your 2011 return, it will be 2014. Do you really want to have to worry about this for the next 3 or 4 years?

    • Ellis Levinson says:

      Hi Mitch.
      Sounds like you are a cpa or tax preparer. It’s too bad that some people go for the cheapest preparer and some go for preparers who charge a lot. If a taxpayer falls within the range of “normal” tax prep needs – other than the non-itemized returns, which they can often do by thenselves, – they need not go the expensive route either. We’ve been using the same accountants for years, right in our neighborhood, who charge very reasonable fees.
      Thanks so much for your input.

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